What is a variable energy contract?

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Finding the best energy contract for your business can be a bit difficult to navigate. With fixed and variable contracts, it can be hard to determine which contract is best for you. Your business might be on a variable energy contract, but what does this mean?

What are variable energy contracts?

In short, variable contracts mean that your per unit gas and electricity costs can change at the discretion of your supplier. Rates usually change if the cost of wholesale changes or if Ofgem changes their price cap. These contracts are usually open ended with no exit fee, so you can exit the contract easier. Because the rate can per unit can go up or down, you bill might fluctuate month by month, even if your usage doesn’t change. These prices can change at any time, but your supplier should give you warning beforehand.

What are the benefits of variable energy contracts?

There are benefits of choosing a variable contract for your business. These plans don’t usually come with exit fees. This gives you the flexibility to switch your energy supplier at any time. You’re also protected by the Business Energy Price Cap, so you will only be charged up to the maximum price set by Ofgem. This price cap is reviewed every three months and can go up and down. This also means that on a variable contract, your price may be less each month if wholesale prices go down or the price cap goes down.

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What are the downsides of variable energy contracts?

While variable energy contracts have their benefits, there are other factors you need to consider. If wholesale prices go up, it’s likely that your unit rate and standing charge will increase. This could cause you to have incredibly high energy bills for months at a time. This can make it harder to budget as it can be difficult to predict how much your bill will be factoring in the price changes. If you’re choosing a variable contract, it’s best to keep an eye on wholesale prices so you can look at switching if prices are continuing to rapidly rise.

Fixed vs Variable energy contracts

If you don’t want a variable contract, you could choose a fixed contract instead. With this type of contract, your unit rate and standing charge prices will be locked in with your supplier from the beginning of the contract until the end. Therefore, if your usage stays the same, your bills are more likely to be consistent, making it easier to budget if you’re keeping an eye on your usage. This contract will have a fixed end date and often exit fees if you’re wanting to leave the contract early. They usually last a year but can be as long as two to three years.

Which is the best type of energy contract?

This all depends on the nature of your business. On a fixed energy contract, you can guarantee that the you will pay the same amount per kilowatt hour you use. But you can’t take advantage of any changes in prices that may happen during the length of your contract. With a variable contract, it’s easier to switch your supplier but you are leaving your business liable to any changes in unit prices. The wholesale price can change depending on lots of factors, such as the weather and supply and demand, so it’s important you take this into consideration when deciding on an energy contract for your business. Our experts can give you advice if you’re still unsure about the best contract for your business’ requirements.

Contact us

Need help finding the best energy contract to fit your business’ needs? Our team of energy experts are on hand to help you find the best energy contract for your business’ requirements. They’ll use their extensive market knowledge to find a contract that works best with your usage and budget and advise you on the best steps to take. Contact us today to find out more.

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